WATERBURY, Conn.—Seventy-five years ago Monday, in the middle of the most severe economic depression the nation has ever known, a 24-year-old Waterbury native with high hopes and a clear vision of the future opened a oneman federal savings and loan association with $25,000 he had borrowed from family and friends.
Harold Webster Smith opened First Federal Savings and Loan Association of Waterbury in October 1935 under the federal government's National Housing Act, which had been passed the previous year to stimulate the economy and make housing construction and home mortgages more affordable during the Great Depression.
Hundreds of federal savings and loan associations were started across the country under similar circumstances in the mid-1930s, said James C. Smith, Harold's third and youngest son and current chairman and CEO of Webster Financial Corp., the $17.7 billion corporation that eventually sprang from the elder Smith's $25,000 investment.
The Waterbury thrift was the second federal savings and loan to open in Connecticut under the National Housing Act, following First Federal Savings and Loan Association of New Haven, which opened in 1934.
Overlooking the green
Harold Webster Smith worked as a special agent for the U.S. Treasury Department in Philadelphia before pursuing his dream of returning to his hometown to open a place where people could go to finance the purchase of their dream homes.
He raised the $25,000 over the course of six months from a pool of about 20 people, including his six siblings, according to his son. The federal government matched Smith's $25,000 with a $75,000 loan the thrift was required to pay back within 10 years.
The final $500 he needed to put him over the top was lent to him by his mother, Margaret Smith.
The new thrift opened on the second floor of the Farrington Building at 135 West Main St., overlooking the green. It opened in a single, 11-foot by 38-foot room on the building's second floor. Smith was the bank's only employee for its first year. Today, the bank has about 3,000 employees.
"It was small and cramped and not very fancy, but none of that really mattered to my father," James Smith said. "The only thing that mattered was that the office was located in downtown Waterbury. To him, that was the important thing."
Because of the dire economic circumstances surrounding its birth, First Federal of Waterbury, like all federally chartered S&Ls, operated in a highly regulated environment.
S&Ls were established to underwrite first mortgage loans to people who wanted to buy homes and construction loans to those who wanted to build them.
First Federal of Waterbury grew slowly but steadily over the next few years. By 1938, the thrift's assets had reached $1 million. In 1942, it acquired the Griggs Building at 50 Leavenworth St., moving its entire operation into the ground floor, before gradually taking over the entire building several years later.
In 1959, First Federal opened its first branch, in Watertown.
It didn't establish a second until it opened an office in what was then known as the Naugatuck Valley Mall on Wolcott Street in 1969 -- a deliberate, measured pace of growth that reflected Harold Webster Smith's capital- management and banking philosophy, summed up in what could be called the institution's prime directive: "Never take a risk you can't afford."
In 1975, the thrift took over a failed redevelopment project at the corner of Bank and Grand streets and built the four-story building it would move into in 1978, and which remains the company's headquarters.
Two other events made 1975 an important year in the thrift's history. That year, First Federal began offering customers checking accounts for the first time, when it debuted its interest-bearing NOW checking accounts. Also that year, James C. Smith abandoned his career as a Wall Street analyst and joined his father and elder brother, Harold Webster Smith Jr., in the family business.
The Smiths were a formidable team.
"Harold Webster Smith is a legendary name among bankers in this state, and Jim Smith has proven to be an outstanding bank executive in his own right," said state Banking Commissioner Howard F. Pitkin.
James Smith, who started his career at First Federal as the bank's assistant secretary, worked his way to the position of secretary in 1977, treasurer in 1980 and president in 1982.
In 1986, he and his father realized First Federal needed to place itself in an optimum capital position to take advantage of any expansion opportunities the state's rapidly changing banking landscape might yield in the future.
Toward that end, the bank converted to a public company and held its initial public offering of stock, an event that added $35 million in capital to its war chest. As part of its conversion to a public company, the bank formed a holding company,
A year later, in 1987, Harold Smith retired as CEO, after having managed the bank's day-to-day operations for 52 years. He stayed on as chairman while James Smith was named the second CEO in the company's history.
After having operated as a thrift for its first 55 years, First Federal converted its charter to that of a commercial bank in 1990. One year later, when a sizable commercial real estate boom was quickly followed by an equally potent bust that severely weakened several financial institutions across the state, the bank was in a strong enough capital position to strike.
"Webster had a lot of capital in those days because they had made a strategic decision to pull back from the commercial real estate market back in the mid-80s," recalls Gerry Noonan, a Naugatuck native and head of the Connecticut Bankers Association. "They were careful and smart with their money and as a consequence, when the real estate market went up in smoke and a lot of banks found themselves in big trouble, they had plenty of capital with which to come in and make acquisitions."
In 1991, First Federal made its initial acquisition when it purchased the failed Suffield Savings Bank out of receivership from the Federal Deposit Insurance Corp. That acquisition brought five new offices into the fold, increasing the bank's branch network from 11 to 16.
One year later, First Federal, which by then had grown to an institution with $900 million in assets, acquired First Constitution Bank of New Haven, a $1.1 billion institution that was the successor to First Federal Savings and Loan Association of New Haven, the state's first federal S&L.
"That acquisition was a big milestone for us," James Smith said. "The joke around here is that the First Constitution acquisition enabled us to become a $2 billion institution on the same day that we became a $1 billion dollar institution."
1 of every 4
First Federal's acquisition spree didn't stop there. In 1994 and early 1995, it acquired Bristol Savings Bank, Shoreline Bank and Trust Co. of Madison and Shelton Bancorp. It also announced an agreement with Shawmut Bank Connecticut to purchase 20 Shawmut branches in the Greater Hartford market, stretching First Federal's branch network to 63 and its total assets to $4 billion.
Harold Webster Smith, who died in October 1997, retired as chairman at First Federal's annual meeting in the spring of 1995. Again, his seat was filled by his youngest son.
In June of that year, all the various banks in the First Federal family, including First Federal itself, were merged and rebranded under the name Webster Bank.
Webster continued acquiring smaller banks across the state through 2006. These acquisitions included People's Savings Bank & Trust of New Britain in 1997, Eagle Bank of Bristol in 1998, North American Bank & Trust Co. of Waterbury in 2003, First
In 1998 Webster became the first Connecticut bank to buy an insurance agency, acquiring Damman Associates of Westport and Wallingford. In late 2004, the bank announced an agreement to acquire Eastern Wisconsin Bancshares Inc. of Wisconsin, a deal that made Webster a major player in the growing health savings account, or HSA, market.
Webster crossed state lines for the first time in late 2003 when it announced the $465 million acquisition of Swansea, Mass.-based First Federal Savings Bank of America, which had 19 branches in Massachusetts and seven in Rhode Island. A few months later, in May 2004, it opened a new branch in Scarsdale, N.Y., it's first foray into neighboring Westchester County.
Though Webster has struggled somewhat in recent years and has faced a number of problems -- including a downturn in its stock price, the loss of some 440 positions in the past two years through layoffs and attrition, eroding confidence among Wall Street analysts and ratings organizations and a string of unprofitable quarters -- James Smith thinks the bank took a significant step in the right direction when it began divesting its non-core businesses a few years ago in order to better focus on the one business in which it is best equipped to excel.
"The business we do best is banking," he said, noting the bank has sold off its insurance companies and other non-core businesses, like Duff & Phelps, a firm that offered businesses investment banking services as well as advice on mergers and acquisitions.
"For a period of years in the early 2000s we attempted to expand our core competencies, but now we've reversed that course and narrowed our focus again to what we do the best, which is regional banking."
Meanwhile, industry experts appear to be confident in the bank's future.
"The current environment is problematic for all banks, including Webster, but the institution remains well-capitalized and well-managed," said John S. Carusone, president of the Bank Analysis Center, a Hartford-based consulting firm.
As to the always present rumors that Webster could be a prime target of larger banks seeking an established footprint in southern New England, Smith said Webster has been the subject of such rumors since it first became a public company in 1986, and that he is flattered to think that other institutions would value Webster as a company attractive enough to pursue.
He added the bank will continue to "earn its independence" through its strong operating performance, just as his father had counseled prior to the bank's initial public offering.
"Performance," he said, quoting his father, "is the antidote to vulnerability."
Information from: Republican-American of Waterbury, http://www.rep-am.com/